Auto Title Loans and the Law
Published: July 1, 2004
This brochure was developed and published by the South Carolina Appleseed Legal Justice Center.
Looking For A Title Loan?
Watch this video before you take out such a high-interest and abusive loan.
What is an Auto Title Loan?
An Auto Title Loan is a short-term loan, usually no longer than 30 days. Your car title is used to secure the loan. This means if the loan is not repaid, the lender may take the car and sell it to get the loan money back. Most title lenders will only make the loan if you do not owe anything else on the car.
Who are Auto Title Lenders?
Auto Title Lenders often target people with bad credit, low-income individuals, military members, and elderly people. The lenders make money from high interest rates and the repossession of cars when consumers cannot pay off the loans.
Why should I be careful with an Auto Title Loan?
When a person is facing financial problems, a short-term Auto Title Loan seems like a good option, especially to someone with credit problems. However, the solution is short term and the effects can be devastating. You can end up paying very high interest rates and lots of money or lose your car.
How high are the interest rates?
The loan is written with an interest rate for a short time period. For example, the loan will show a 25% interest rate for one month. But this rate over a year is actually 300%. Auto title Lenders will usually write a loan for 30 days or less. At the end of the month, the lender will accept the interest payment and allow the debt to be "rolled over" for another month. On a $600 loan, the interest would be approximately $150. This means you owe $750. If you only pay $150 for the month, you will owe $750 the next month.
What if I can't pay the loan off within the proper time?
If you can't pay off the loan it will be rolled over. In many cases the borrower will not be able to pay the loan off in full, and the interest will begin to build up all over again at the high rate. This is called "rolling over" or 'flipping" the loan.
How much money can the Auto Title Lender loan me?
Auto Title Lenders may not make loans for more than the fair market retail value of the car. The fair market retail value is determined by common industry appraisal guides. Check in NADA or Kelly Blue Book to find the value. Most title loans are between $601 and $2,500.
What happens if I don't pay off the loan?
Except when there is fraud, the only thing the Auto Title Lender can do is to repossess (take it from you) and sell off the car. The lender may not sue you to repay the loan, but they will take your car. Call a lawyer if this is about to happen.